What is ERP? It’s a love hate relationship

By | January 24, 2014

ERP stands for Enterprise Resource Planning (pronounced “E-R-P”) and anyone working in a Fortune 500 knows what this is. Many people use it daily at work. Quite simply, it is the software backbone that runs most large businesses.

In the early days of computing, there was thousands of different programs tailored to each department and much of it was customized. While it may have worked in the short-term it was not integrated, and certainly not scalable.  Enter ERP.

It’s everywhere. The idea started 30+ years ago as an offshoot of manufacturing software which controlled the factory floor. At that time, software told the factory what was being made, which supplies needed ordering, and when it would be completed. ERP is the logical – albeit broad – extension of that concept that touches all parts of the business. On SAP’s website here, ERP products touch Finance, Human Resources, IT, Manufacturing, Marketing, Procurement, Sales, Service, Supply Chain and almost everything else.  It covers the end-to-end process. It’s the only solution you need. . .

It’s more than databases. Yes, Oracle is famous for robust and fast databases, but the ERP solutions from the top software companies (including Oracle) offer much more than just piles of data. The processes that link the different parts of the business is where the real magic happens and the work gets done.

For example, the manufacturing module of the Oracle ERP system might see inventory falling below a certain level, and signal to the purchasing module to order more. When the order is received at the warehouse, there is a three-way match between the vendor’s purchase order, the sales order, and the packing slip. Voila. Coordinated business process – a thing of beauty.

ERP modules

These processes are built on industry best practices. By its nature, it drives standardization. It’s rigid, but often-times better for the companies that adopt it. Currently, SAP boasts 250,000 clients using their ERP modules. As you can see from this list, there are all real organizations selling real products and services globally. 

SAP clients

Sounds like a dream. If you were a science fiction author 30 years ago who dreamed about a day when 1 massive computer program could access, monitor, and control all the transactions of a company . . . that is what an ideal version of what ERP looks like. In a this world, the ERP system would link all the bits of data and make it a smooth, almost seamless flow of transactions and analyses.  

ERP projects are expensive, and sometimes fail. Implementing ERP often takes years and costs millions (sometimes billions) of dollars.  It often takes a small army of consultants and programmers to make ERP work correctly. Some people joke that SAP stands for Stop All Production. ERP implementations are so big that they are often mentioned in the annual report because they can can affect earnings.

Fewer choices. There has been a large # of mergers and acquisitions over the years as software companies are trying to knit together the different pieces so they can offer their customers the promise of ERP nirvana where all the data talks to each other and makes management easier.

As a consultant . . .  the chances that you will be on a ERP-related project is very high. Perhaps you will help with the vendor selection, or conduct business process mapping. You may gather business requirements, or you may conduct user training. You will be doing ERP work if you work for any of the big 4 or an IT consultancies. The projects are longer in duration and very process oriented.

Beware.  ERP has the data, but it will not be clean.  Garbage in = Garbage out. If the information in the material master, vendor master are wrong, the data will be wrong. If you assumptions built into the forecast are wrong, the data will be wrong. Understand the analytics is a mix of science and art. Beware of bad ERP data.

As a lawyer and accountant . . . ERP is where the transactional data is buried. If you want to know how many products were sold, how many new customers were signed up, now many deliveries were made, or how many employees were fired. That information is probably in the ERP. Be willing to look for the data, and ask for it in the right way.

Understanding the basic business processes. If you can can speak to the purchasing department in business and ERP terms that the buyer understands, you will save yourself a lot of time and frustration. Be willing to ask for the ERP data. Be specific on the time frame and the fields you want. It will likely require some MS Access and MS Excel time, but your new hire from MIT or Georgia Tech will make that ERP data sing.

Lawsuits. When ERP implementations go bad, so too does the customer-vendor relationship.  One of the most recent lawsuits is between Marin County, CA and Deloitte and SAP. Here is a list of the top ERP disasters of 2010. Why are there so many?

Love-Hate relationship. In spite of these challenges, a 2007 survey of 400 IT professionals who installed ERP showed that 85% of them said, “[ERP] was essential to their business” and they “”could not live without [ERP].”  

Some of the big names in ERP: